interbank dealer broker - idb david rogers july 25-26, 2000 jakarta, indonesia
TRANSCRIPT
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Interbank Dealer Broker - IDBInterbank Dealer Broker - IDB
David RogersDavid RogersJuly 25-26, 2000
Jakarta, Indonesia
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Forces underlying bond growthForces underlying bond growth
Local demandLocal demand High savings rate Predictable cash flows Asset/Liability Matching Bonds provide the right risk profile
Foreign DemandForeign Demand Attractive yields Improved Sovereign risk outlook Policy Liberalisation Portfolio diversification
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Supply FactorsSupply Factors
Increase in Government borrowing
Need for benchmark yield curves
Falling interest rates/tighter spreads
Exchange rate stability
Increased market liquidity/interest
Maturity mismatch between loans and investments
Long-term infrastructure needs
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Development of a Government Development of a Government Bond MarketBond Market
Primary MarketsPrimary Markets/Market Makers/Market Makers
Developing ProcessDeveloping Process
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Development of a Government Development of a Government Bond MarketBond Market
Primary markets/ Market MakerPrimary markets/ Market Maker Essential in building deep liquid
markets
Expertise Expertise Distribution Pricing Market Making
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Development of a Government Development of a Government Bond MarketBond Market
BenchmarksBenchmarksPrimary MarketsPrimary Markets/Market Makers/Market Makers
Developing ProcessDeveloping Process
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Development of a Government Development of a Government Bond MarketBond Market
Benchmarks Benchmarks definition : reference securities with
exact dates, issued in a wide range of maturities with adequate size for the market to trade in.
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Development of a Government Development of a Government Bond MarketBond Market
BenchmarksBenchmarks Repurchase Repurchase AgreementsAgreements
Primary MarketsPrimary Markets/Market Makers/Market Makers
Developing ProcessDeveloping Process
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Development of a Government Development of a Government Bond MarketBond Market
Benefits of REPO’sBenefits of REPO’s Ability to service customer flow
Liquidity
Investment alternative for investors
Financing positions at a lower cost
Arbitrage [cash (vs) futures]
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Development of a Government Development of a Government Bond MarketBond Market
BenchmarksBenchmarks Repurchase Repurchase AgreementsAgreements
Secondary Secondary MarketsMarkets
Primary MarketsPrimary Markets/Market Makers/Market Makers
Developing ProcessDeveloping Process
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Development of a Government Development of a Government Bond MarketBond Market
Secondary MarketsSecondary Markets Liquidity - Are there enough players
participating in the market to show competitive prices?
Depth - Are there adequate issues placed into the market? Do 2-way prices still exist after the first or second week of the original issue date?
Transparency - Who has a clear picture of what an issue is really worth at any given time?
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Development of a Government Development of a Government Bond MarketBond Market
BenchmarksBenchmarks Repurchase Repurchase AgreementsAgreements
Secondary Secondary MarketsMarkets
Inter-Bank Inter-Bank DealersDealers
Primary MarketsPrimary Markets/Market Makers/Market Makers
Developing ProcessDeveloping Process
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Development of a Government Bond Development of a Government Bond MarketMarket
Role of Inter-Dealer BrokerRole of Inter-Dealer Broker
Brings the various market makers together Disseminates to the market via telephone,
screen or a combination of the two Facilitates the development of the secondary
market Liquidity Depth Transparency Earns commission for arranging trades at
pre-agreed fees
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IDB vs Market Marker IDB vs Market Marker
IDBsIDBs No positions in the market. Bi-partisan, independent role Best efforts, best execution For a pre-agreed commission
Market Maker Market Maker Willing to support or participate in
market by giving two way prices Takes positions Trades for a spread
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Markets without an IDBMarkets without an IDB
Yes, they can and do exist…Yes, they can and do exist… Without an IDB in the market it may at
times be difficult to execute trades
Finding out the value of securities could be difficult
IDBs’ help offshore investors to understand the limitations of a market. Help with liquidity and execution
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Development of a Government Development of a Government Bond MarketBond Market
BenchmarksBenchmarks Repurchase Repurchase AgreementsAgreements
Secondary Secondary MarketsMarkets
Inter-Bank Inter-Bank DealersDealers
Clearing and Clearing and SettlementSettlement
Primary MarketsPrimary Markets/Market Makers/Market Makers
Developing ProcessDeveloping Process
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Development of a Government Development of a Government Bond MarketBond Market
Clearing / Settlement SystemClearing / Settlement System Securities - usually issued and held in
scriptless form/computer format
Transfers placed over a wire system, such as money transfers
Central Bank/Govt entity usually provides electronic book-entry format system
These systems contribute to liquidity, and settle securities quickly and effectively
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Development of a Government Development of a Government Bond MarketBond Market
BenchmarksBenchmarks Repurchase Repurchase AgreementsAgreements
Secondary Secondary MarketsMarkets
Inter-Bank Inter-Bank DealersDealers
Clearing and Clearing and SettlementSettlement RegulationsRegulations
Primary MarketsPrimary Markets/Market Makers/Market Makers
Developing ProcessDeveloping Process
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Development of a Government Development of a Government Bond MarketBond Market
Market RegulationMarket Regulation Creating a framework conducive for
dealers/brokers A committee comprised of dealers, IDBs,
and regulatory groups to deal with any trading situations by general consensus
US - National Association of Securities Dealers, (NASD) a division of the Securities Exchange Commission (SEC)
UK - (SFC) Securities & Futures Commission regulates market
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Regional Bond MarketsRegional Bond Markets
Hong KongHong Kong US$14bn outstanding/ Daily turnover
US$2.0 bn 100+ Recognized Dealers 29 market-makers / two-way prices Govt auction/can trade via CMU with links
to Euroclear and Cedel 7 IDBs [5 international/ 2 local] Screens + name-give-up on completion Small repo market
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Regional Bond MarketsRegional Bond Markets
Hong KongHong Kong promote efficiency, integrity, and
development of the financial system
promote development of the local debt market through improving market infrastructure and promote issuance of high quality debt instrument
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Development of a Government Development of a Government Bond MarketBond Market
BenchmarksBenchmarks Repurchase Repurchase AgreementsAgreements
Secondary Secondary MarketsMarkets
Inter-Bank Inter-Bank DealersDealers
Clearing and Clearing and SettlementSettlement RegulationsRegulations
Primary MarketsPrimary Markets/Market Makers/Market Makers
An Effective Government Bond MarketAn Effective Government Bond Market
Developing ProcessDeveloping Process
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Prebon Yamane GroupPrebon Yamane Group
No substitute for knowing the market No substitute for knowing the market Foreign exchange, money markets,
derivatives, securities (fixed-income and equities), energy and emerging markets
Brokers transactions exceeding US$55 trillion annually - world-wide client base
31 international offices, 10 in Asia New Products and Regional specialist Leader in fixed income, illiquid debt,
credit and debt derivatives